Sara O'Rourke: Rebuilding America's Semiconductor Industry

July 15, 2024 00:25:06
Sara O'Rourke: Rebuilding America's Semiconductor Industry
Ayna Insights
Sara O'Rourke: Rebuilding America's Semiconductor Industry

Jul 15 2024 | 00:25:06

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Show Notes

In this episode of the Titanium Economy podcast series hosted by Nidhi Arora of Ayna.AI, Sara O'Rourke, Chief of Staff and Head of Operations for the CHIPS Investment Office, provides an in-depth analysis of the CHIPS and Science Act of 2022. Sara discusses the pivotal role of semiconductors in America's economic and national security and outlines the innovative strategies of the CHIPS program, which manages over $50 billion in federal investment to revitalize U.S. semiconductor manufacturing.

Sara O’Rourke began her career with impactful work in education and women's economic empowerment in the Middle East, leading her to address significant challenges. At McKinsey, she spent nearly a decade driving financial and operational transformations for businesses and government agencies, co-founding the Center for Reinvesting in America to leverage federal investments in infrastructure, clean energy, and technology. Sara holds a bachelor's degree in social studies from Harvard and a master's in international affairs and finance from Johns Hopkins.

 

Discussion Points

Ayna Insights is brought to you by Ayna, the premiere advisory firm in the industrial technology space that provies transformation and consulting services to its clients. The host of this episode, Nidhi Arora, is VP of Content & Marketing at Ayna

 

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Sara O’Rourke LinkedIn

Titanium Economy Website 

Ayna Website

Nidhi Arora LinkedIn

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Episode Transcript

[00:00:03] Speaker A: Welcome to INa Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. Ina Insights is brought to you by Ina AI, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Ina Aihdev, please visit our website at www. Dot ina dot AI. [00:00:40] Speaker B: Good morning. Welcome to another episode of our Titanium economy podcast series hosted by Ina AI. Our guest today is Sara Orauk, chief of staff and head of operations for the Chips investment office. Over the last year, she designed and now leads end to end investment process across 100 plus deals and 150 employees. She co leads the portfolio slash pipeline strategy to inform top down allocation and as part of that, helps facilitate the go to market and customer activation efforts. Before that, she spent a decade at McKinsey and Company, where she was a partner in Washington, DC office. Sara's work at McKinsey focused on driving major financial and operational transformations, especially for governments. She was co founder of McKinsey's Reinvesting in America initiative, which helps governments and businesses drive transformative change by leveraging major federal investments in infrastructure, clean energy, and technology. She also led McKinsey's work in improving women's leadership in the public and social sectors. Sarah holds a bachelor's degree in social studies from Harvard College and a master's degree in international affairs and finance from the John Hopkins School of Advanced International Studies. Sara, welcome to our podcast and we are very excited to have you here with us today and looking forward to talking all about the great work you're doing in the commerce department. [00:02:16] Speaker C: Thank you for having me. [00:02:18] Speaker B: Awesome. So to get started, Sara, could you tell us a little bit more about the chips and the science act? [00:02:25] Speaker C: Totally. Yes, of course. As many of your audience members probably already know, semiconductors, or chips, are tiny electronic devices that are integral to America's economic and national security. These devices, power tools as simple as a light switch and as complex as a fighter jet or smartphone. They power our consumer electronics, automobiles, data centers, critical infrastructure, AI, and virtually all military systems. And they're also essential to building blocks of technologies that will shape the future. And while we, the US, remain a global leader in semiconductor design and research and development, which are kind of the early parts of the value chain, we have fallen behind in manufacturing. And at this point, we account for only 10% of global commercial production today. None of the advanced logic and memory chips, the chips that power PCs, smartphones, and supercomputers, are manufactured at commercial scale in the US and advanced packaging, which is the next horizon of semiconductor innovation, currently all takes place outside of the US. In addition, many elements of the semiconductor supply chain, chemicals, gases, equipment, are geographically concentrated, leaving them vulnerable to disruption, which many of us faced in the COVID pandemic. And that's why we, the US, passed the Chips and Science act of 2022 into law. This provides our Department of Commerce, which is where I work, with over $50 billion for a suite of programs to strengthen and revitalize the us position in semiconductor research, development and manufacturing. So when the CHiPs act passed in August of 2022. So we're about to hit our second year anniversary of the CHiPS act in August, there was no real program to catch the money. There were zero employees. There wasn't an operation, there were no processes, there was no strategy. So since then, we've not only built a program of over 200 employees, but we have allocated over 30 billion of the 39 billion in chips incentive funding. [00:04:24] Speaker B: So you've been part of the administration now for slightly more than a year. Right. And also have advised federal investment programs for nearly a decade. How do you see the government's approach to these programs change or develop in that timeframe? [00:04:41] Speaker C: Yeah, I think when you talk about federal investment programs, I think this is where the chips program really stands out in terms of its innovative and different approach to government investment. It's very different than what you would see from a typical procurement or grant process. There were a couple of distinctions that I would make here, including the team we've built, the way we interact with applicants in the ecosystem, the way we evaluate applicants, and the nature of how our funding is structured. So first is the team we have assembled. So, given we're giving money out to sophisticated companies, some of the largest companies in the US, we wanted a team that could go toe to toe in those commercial negotiations. So we've recruited over 40 people from the private sector, from investment banks, private equity funds, the semiconductor industry, consulting firms, and we structure these people in deal teams, which is similar to how a PE firm would function, and pair them with policy experts who are experts on a range of topics, from semiconductors to national security, to work for an environment. And by bringing together folks with true commercial expertise and those who understand that the policy outcomes are able to negotiate effectively with applicants and get a good deal, while also ensuring we're meeting our policy goals. The second is how we interact with applicants. So a typical grant program might just kind of say, here's when your applications are due, send us in. Okay, we'll look at them for a couple of months and then we'll send out a decision. We are incredibly hands on and we engage early and often with our applicants. So one is we have a deal team for each applicant. We see one of our core jobs is providing feedback to applicants on their project. So we have a pre application that applicants could fill out to get early feedback from us. And often our feedback to them is dream bigger, build more, build quicker, or bring more private capital to the table and rely less on the government. And so we really see ourselves as catalyzing private capital and helping our applicants dream bigger. And this has really created a dynamic, iterative set of negotiations that leads to better projects. And on this kind of private capital point, we also see ourselves as just one slice of the financing pie. We're not funding 80% of capex, we're really largely funding five to 15% of capex. And we're telling our applicants, go get the rest from private capital. And we see ourselves as really complimentary. And as a result, we're always engaging with investors. So public and private investors in the semiconductor ecosystem, we're engaging with major customers. So that's autos industrials, hyperscalers, fabless companies, to really make sure that we're all on the same page in terms of onshoring manufacturing, and we're all putting money towards the problem. And then finally, in terms of how we evaluate applications. So we don't really have a check the box evaluation process. We have a very robust commercial diligence process where we're primarily looking at commercial returns and we're looking at the entire life of the project. We're pressure testing assumptions, we're asking for detailed financials, and we are building our own assumptions as well. And we're looking at look first and foremost, what contribution can you make to economic and national security? Let's then look at the returns, look at what the sizing is. And then once we actually allocate funding, we're not just giving a huge sum of money upfront, we are doing milestone based funding. So we want to see actual operational milestones. So whether that's your clean room being constructed, your first wafer out your at scale production, and we chunk out the money accordingly. And we also have provisions like upside sharing, where we want to see that if your returns are drastically higher than either our upside case, the government could participate in those returns. And that's not to make sure that money comes back to the program, although that could happen. It's really to align our incentives with applicants and make sure that we and companies are sitting side by side looking forward at what success looks like versus being head to head. So we really care about those aligned incentives. [00:08:45] Speaker B: Great. Sarah, you mentioned that you encourage your applicants to get a major portion of their capex funding from the private sector. And we know that when it comes to investment in manufacturing or equipments and facilities, so to say, like infrastructure for manufacturing, it's very hard to attract private sector investment. Right. So do you have a sense of how is that panning out for some of your applicants? [00:09:17] Speaker C: Yeah, I mean, we've seen once the Chiptag passed, I think over 300 billion in private capital investment was announced, and we're seeing more and more capital come into the sector. Part of it, honestly was just investors were unfamiliar with where the pockets of opportunity were in the value chain. And a lot of our job is educating them on what is the chips act, what are the various parts of the semiconductor value chain, why should you be excited, et cetera. You've also seen some of these major deals now announced with the likes of the intel to the world. The Brookfield intel deal is a good example of private investors now really seeing how to structure deals in the space. And so that's one of the things that we're most excited about is the way that chips has activated a new interest and a new wave of investment in the space. [00:10:08] Speaker B: That's great. So, Sara, you mentioned that we are seeing some of these big deals hit headlines, right? You mentioned the intel and the Brookfield deal. So just taking a step back here, because you're also working on multiple fronts across the entire semiconductor supply chain. Right. So could you also tell us a little bit more about some of the other real groundwork that you are also doing that's not making headlines? [00:10:37] Speaker C: Yes. So, as I've mentioned, we've announced ten preliminary memorandums of terms, which is worth roughly 30 billion in funding. This includes funds for the leading edge companies. So that's Micron, Intel, TSMC, Samsung, which is four out of the five leading edge firms in the world. Separately, you will have seen that SK Hynixen announced an investment in the United States a while back for advanced packaging. But we've also invested in some current and mature companies, which includes global foundries, BAE, polar, and Microchip, which serve auto and defense capabilities, as well as Solix, which is an innovative new glass substrate for advanced packaging. And one of our first supply chain announcements for those deals. Our team are hard at work finishing the due diligence process, environmental regulatory processes, and eventually distributing final awards. We'll have a lot more pmts coming out very soon in the months ahead for current and mature companies as well as advanced packaging projects and suppliers. And we are going to attempt to have a significant impact upstream on the semiconductor ecosystem. That's the CPO, the chips program office incentive side. The chips R and D side is also making real progress on its program. So they're expecting to invest more than 5 billion in the NSTC over the next decade, more than 3 billion for the, for the NAP MP, which is an advanced packaging set of funding as well, and then more than 285 million for manufacturing. USA Institute. They've already awarded over 100 million in metrology projects. So anyway, a lot of money going out the door and more announcements to come. And we also don't see our job ending at award. So once we get money awarded, we really see ourselves as partnering with these companies over the long term to ensure that these projects are successful and we see ourselves being a partner for them into the construction and operational phases. [00:12:34] Speaker B: It's very exciting to hear about all of the investments, especially because we are rooting here for titanium economy, the manufacturing sector. So Sara, you mentioned that since your job doesn't end at just awarding the investment, you really partner with the companies. And also a few minutes ago you mentioned that you have milestones based investments. So just would like to understand, when you partner, I mean, right from the initial stages of like the investment to once it has been awarded at the different stages to partnering with them to make sure it's a success, what sort of metrics do you track to make sure the investment is successful? [00:13:18] Speaker C: There are two kind of like anchors that we look to as a program. One is the top line goals that the secretary Mondo herself laid out. So one is whether or not we are good stewards of taxpayer funds and two, whether we protect the economic and national security of the United States. And so we use those two polls as kind of our guiding light as we run the program. It's not enough for us to just achieve the policy goals. We need to do so in a way that protects taxpayer dollars. And I'll talk a little bit about that in a bit. But the other thing that we look to is our vision for success. And our vision for success basically says, look, we're going to have two leading edge clusters at scale in the US. We are already on track to be 20% of leading edge production for logic, which is a massive improvement from very little, if none leading edge logic in the United States. And so one thing we look to in the leading edge space is, are we going to hit that 20% of production target and we're on our way to doing so. We want to have meaningful leading edge memory capacity here, which is our Micron investment. We want to be able to address critical choke points in the current and mature space, both through real foundry capacity, which is polar, which is global foundries, as well as niche use cases in the defense and other PPD 21 or critical industries. On a lot of those shortages were faced in the pandemic. We want to be a meaningful contributor to the supply chain and increasing the resilience of the supply chain. We're not going to solve every single problem in the supply chain, but if we can say, look, we're reducing a choke point for a leading edge cluster or a cluster of one of our current mature anchor fabs, we can be really excited about that. And then another part of our vision for success, which I'm particularly excited about, is advanced packaging. We've had very little, if no advanced packaging in the United States. We want to have several major advanced packaging projects. And advanced packaging is really the future of the semiconductor industry, bringing together high band memory logic into being able to create new and critical use cases. And so those are the different areas we always look to as we are, as we're looking to. How do we measure our own success? And obviously, along the way, we want to create a lot of jobs. We want to bring jobs for manufacturing back to the US. And so that's, and that's obviously necessary to make these projects successful. [00:15:51] Speaker B: Right. And Sara, you're obviously working on a very large opportunity, like you mentioned in the beginning, of bolstering US's position in the semiconductor space. Right. I'm sure you're facing a lot of challenges as, as you're doing that. So could you tell us a little bit about that as well? [00:16:11] Speaker C: The challenges? Yes. I mean, one challenge that you may have heard of that we in a number of programs face is the environmental regulations for fabs around the country. Ensuring that companies are meeting the environmental and permitting requirements in a timely manner is critical to the success of our program. And we've set up an entire team dedicated just to that, to providing quick, individualized assistance to applicants working across the interagency, working with state and local governments to ensure that projects proceed expeditiously and that the environmental review does not hinder the progress of our investments. We've actually already completed the environmental review for BAE Systems, which is one of our early investments, and that was within 31 days, which I think must be a record. And we've released our draft environmental assessment for TSMC, which is under public comment, and other draft environmental assessments will soon be released. So I think we knew that this was going to be a massive challenge for us. We knew that NEPA and perpetrating was going to be a challenge, and we got way ahead of it in our process. And we're really hoping that the way that we set this up allows the rest of these environmental reviews to happen much more quickly than they otherwise would. And obviously, the other challenge that we're always faced with and a number of construction and manufacturing process projects across the us face, this is workforce. We need the workforce here to build these fabs and operate these fabs. And so that's something that we focus a lot of our time and attention on. [00:17:48] Speaker B: Got it. And Sara, you mentioned about how you went about recruiting talent for chips, which sounds like an incredible story, right? In such a short span, being able to put together a deal team of 40 people from the top investment banks. But talent overall is another challenge that the manufacturing space really faces. So how do you work with the companies that you invest in as they grapple with this talent gap issue? [00:18:22] Speaker C: Yeah, I think the secretary has talked a lot about the importance of making sure we have the workforce needed to support the semiconductor industry. And this is also like a top priority for every company that's investing in the United States. And I don't think they would be investing in the US without understanding the necessity of having the right workforce. We work with them by a laying out what does it look like to have a good, robust workforce plan, and how do you get ahead of the potential hiccups that you could have along the way? And we really work to make sure that our companies know what it takes to bring the workforce necessary to get these projects done. We also care about having a skilled, diverse workforce. And so we work with our companies to make sure that they're thinking that in the same way and where we can, we help remove roadblocks and problem solve when there might be issues, because we're all in this together to get these projects done. [00:19:19] Speaker B: Awesome. So, Sara, I would like to switch gears now and focus on your journey to date. So could you tell us a little bit more about your background and the work you did before you joined the chips office? [00:19:33] Speaker C: Sure. Yeah. So I guess I've always been drawn to major intractable or existential challenges, especially those that impact economic competitiveness or economic well being. I actually started my career in the Middle east, working on education and women's economic empowerment. And I thought I would go into the foreign service, which is actually why I went to school at Saiss for international economics and Development. But while in school and while interning at McKinsey, I really found a passion for helping businesses and governments become more effective, efficient, strategic. And so I ended up staying at McKinsey for nine years. And while I was there, as you mentioned, I led several operational and strategic transformations for companies, but also government agencies in the US and abroad. And I really came to see the importance of making government investments effective. I graduated in 2000, right in the middle of the financial crisis. I was helping a number of state governments in the, in the course of COVID with a number of the programs, the funding programs that went out. And so when some of these major funding, these bills were announced by the administration, Chips Ira Bil I was really focused on ensuring that governments and also the private sector knew how to make these investments work for the american economy. And I set up the center for Reinvesting in America at McKinsey to do that. Then I was kind of like, well, I'm advising clients on how to do this. Why don't I try and help do this by going into the government? [00:21:12] Speaker B: Got it. And what is it about this chips opportunity, Sara, that attracted you towards it? What about the problem made you believe that this was the next thing that you wanted to help with? [00:21:26] Speaker C: I think this problem is so critical for the country, for us to solve it in the right way. And it also brings together so many of my different interests and passions. So one, as we discussed at the top, semiconductors power all of the us economy and are really the foundation of a lot of the modern US economy. If you read chip war by Chris Miller, you'll see that Silicon Valley and our whole modern economy was really founded on major investments, by the way, by the government, NASA, DoD, in the semiconductor industry and really american innovation. And that is what got us here. And obviously now it's a story of us losing a lot of that capacity. And so I felt really motivated by the problem set of let's recapture that american competitiveness. It's also a super, it's super wrapped up in geopolitics. And so that really touched on my slice background, my international finance and international relations background. And really this is the first time in a long time that the US has tried to successfully do industrial policy. And I wanted to make sure that that was done right. And I wanted to see be a part of like the great experiment of can we use the government investment to catalyze the private sector and do so in a way that is, that is not harmful to the sector, but really sets it on a path for success over the long term. And what happened to be a total startup, and so that was really exciting for me, is starting and designing a government program really from scratch. [00:23:01] Speaker B: Awesome. So Sara, for closing thoughts, obviously the chips office has made a lot of progress on behalf of the us semiconductor industry, and it seems like, like you said, there are a lot more announcements to come, so we'll, we're all excited for that. Has there been one initiative or one project which has been the most meaningful to you so far? [00:23:25] Speaker C: That is a really great question. There have been a lot of this, there's a lot of parts of this job that are meaningful. I think the organization we have built, that really takes some of the top policy experts in government, people with deep backgrounds in the semiconductor industry, everything from supply chain to photonics to the intelligence community's, use cases for semiconductors and pairs that with commercial expertise and an ability to engage with companies in an effective way, I think is just such a special recipe and something that's never been done in this way, at least. And so building that organization and the culture and the bringing all of that together to achieve outcomes has been really meaningful and also not easy. And so that's probably one of the things that has been most meaningful to me about the job. [00:24:21] Speaker B: Thank you so much, Sara. It was really great to have you with us today, and thank you for sharing your insights on chips and the us semiconductor industry. [00:24:31] Speaker C: Thank you so much for having me. [00:24:38] Speaker A: Thanks for listening to Ina Insights. Please visit Ina AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.

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